Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 1 Consequences of RAND Violations Andrew Thomases

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 2 Royalty Amount Courts may impose license on Court-ordered terms Microsoft v. Motorola, No. 2:10-cv JLR (W.D. Wash.) –RAND does not “only require [patentee] to negotiate” but also “to eventually grant a license on RAND terms.” (Dkt. No. 465 at 14) –Trial to “determine a RAND range, as well as a specific RAND rate” (Id. at 12) –Denied request to strike compulsory license remedy (Id. at 17-19)

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 3 Royalty Amount How to determine royalty rate? Apple v. Motorola, No. 1:11-cv (N.D. Ill.) (Posner, J.) “The proper method of computing a FRAND royalty starts with what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the function performed by the patent.” (Dkt. No at 18)

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 4 Royalty Amount Open Issues –How is a RAND royalty determined? Other license terms? –Is a RAND royalty the same or different from a “reasonable royalty” under patent damages law? –Should there be standard industry rates? –How does the “entire market value” law apply? –Royalty stacking? –Who determines rate: judge v. jury, same or different forum as forum for patent assertion?

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 5 Availability of Injunctive Relief Can a RAND patent holder obtain an injunction? Apple v. Motorola, No. 1:11-cv (N.D. Ill.) (Posner, J.) –No Injunction for RAND patents “committing to license its patents on FRAND terms, Motorola committed to license the [patent] to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation” (Dkt. No at 18-19) –Irrelevant that Apple rejected Motorola’s offer and didn’t make counter-offer (Id. at 20) –Cost of litigation’s effect on settlement is irrelevant “You can’t obtain an injunction... on the ground that you need... to pressure the defendant to settle your damages claim on terms more advantageous to you” (Id. at 21)

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 6 Availability of Injunctive Relief How does Germany handle this? Orange-Book Standard, No. KZR 39/06 (Fed. Ct. of Just. of Ger.) Defendant can defend against injunction “by pleading that the [patentee] abuses a dominant position on the market if he refuses to conclude a patent license agreement with the defendant on non- discriminatory and non-restrictive terms and conditions” “if the defendant has made him an unconditional offer [to] license” (i.e., regardless of outcome of litigation) on terms the patentee cannot “not reject without violating the prohibition of discrimination or anti-competitive behaviour” (e.g. offer letting the patentee set whatever “reasonable” rate it wants) and the defendant begins paying Note: MS v. Motorola court rejected “Orange Book” remedy

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 7 Availability of Injunctive Relief How does ITC handle RAND? In the Matter of Certain Wireless Communication Devices (Motorola v. Apple), Inv. No. 337-TA-745 (Int.’l Trade Comm.) –Administrative Law Judge rules that RAND is not a defense applicable to ITC proceedings –In unusual step, ITC’s full commission sought input regarding effect RAND should have on ITC proceedings

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 8 Availability of Injunctive Relief Questions from the ITC’s full commission: –Does the mere existence of a RAND obligation preclude issuance of an exclusion order? –Should a patent owner that has refused to offer a license to a named respondent in a Commission investigation on a RAND obligated patent be able to obtain an exclusion order? –Should a patent owner that has refused to offer a license on a RAND obligated patent to some entity (regardless of whether that entity is a named respondent in a Commission investigation) be able to obtain an exclusion order?

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 9 Availability of Injunctive Relief Questions from the ITC’s full commission (cont.): –Should a patent owner that has refused to negotiate a license on RAND terms with a named respondent in a Commission investigation be precluded from obtaining an exclusion order? –Should a patent owner that has refused to negotiate a license on RAND terms with some entity (regardless of whether that entity is a named respondent in a Commission investigation) be precluded from obtaining an exclusion order? –Should a patent owner who has offered a RAND license that the named respondent in a Commission investigation has rejected be precluded from obtaining an exclusion order? ITC full commission did not ultimately address RAND issue, instead remanding on another ground

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 10 Availability of Injunctive Relief Some U.S. Courts will stop foreign injunctions on RAND patents Microsoft v. Motorola, No. 2:10-cv JLR (W.D. Wash.), No (9 th Cir.) – Motorola wins patent case against Microsoft in German court on RAND patent, seeks injunction –U.S. District Court enjoins Motorola from enforcing German injunction, affirmed by Ninth Circuit, says Orange Book method results in too high rates “[I]t could well be that retrospective payment at the rate ultimately determined and a determination of the future rate, not an injunction banning sales while that rate is determined, is the only remedy consistent with” Motorola’s RAND obligations (9 th Cir. Slip. Op. at 26)

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 11 Damages Antitrust Damages –Apple v. Samsung, 5:11-cv LHK (N.D Cal.) Jury instructions: “The costs and expenses in defending against the assertion of declared-essential patents may be antitrust injury.” (Dkt. No at 109) Breach of Contract / Duty of Good Faith & Fair Dealing Damages –Microsoft v. Motorola, No. 2:10-cv JLR (W.D. Wash.) “[I]f a jury finds Motorola’s October 21 and 29 Letters breached its agreements, the jury can assess damages” (Dkt. No. 465 at 19)

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 12 Damages Open Issues: –How to measure damages? Excessive license fees already paid? Offset to patent infringement award? Fees and expenses in responding to patent assertion? –Do patentees have to do something especially bad to permit damages? Completely ignore RAND obligation or “bad faith” RAND negotiations –Any viable RAND legal theory where punitive damages could be awarded? –Willfulness issues.

Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 13 Andrew N. Thomases Partner Patent and Technology Litigation Skadden 525 University Avenue, Suite 1400 Palo Alto, CA